Step 4 – Determine the Trainee’s Daily Production Objective
It is important to monitor the trainee’s daily production—therefore, a daily production objective must be calculated, rounded to the nearest half-hour, by simply dividing the weekly production objective by the number of work days per week.
In the example presented on the Pay Plan Worksheet (Annex A):
19.9 (FRH weekly production objective) ÷ 5 (work days per week) = 4.0 (FRH daily production objective)
Daily production objectives should always be rounded up. Management is responsible for ensuring that the trainee has the opportunity to reach that objective every day.
Management must insist that trainees turn in their completed flag sheets for daily review. Failure to manage trainee production objectives every day often results in trainees not producing enough flat rate hours early in the week. They miss their weekly production goals because management was unable to take corrective action early in the pay period.
Step 5 – Calculate the Training Bonus Accrual Rate
Calculate the bonus accrual rate, or the amount set aside for distribution to other technicians after the trainee has met their objectives. Subtract $2 from your effective cost-of-sales to determine the bonus accrual rate.
In the example presented on the Pay Plan Worksheet (Annex A):
$12.41 (effective cost-of-sales) – $2.00 = $10.41 (bonus accrual rate)
Step 6 – Test the Calculation
As with all programs that deal with pay plans, the calculation should be tested prior to employment to measure the probable outcome. The following sample test should satisfy the validity of the pay plan.
- Multiply the trainee’s production (flat rate hours) by the effective labor sales rate to obtain labor sales.
36 (FRH trainee production) x $36.50 (effective labor sales rate) = $1,314.00 (labor sales)
- Multiply the bonus accrual rate by the trainee’s production (flat rate hours) over the objective to obtain the bonus accrual amount.
$10.41 (bonus accrual rate) x 16 (FRH trainee production over objective) = $166.56 (bonus accrual amount)
- Subtract the trainee’s wages and the bonus accrual amount (bonus accrual rate multiplied by flat rate hours over the trainee’s objective) from labor sales to obtain the gross profit.
$1,314.00 (labor sales) – $406.56 (trainee wages [$240.00] + bonus accrual amount [$166.56]) = $907.44 (gross profit)
- Divide the gross profit by labor sales to obtain the gross profit percentage.
$907.44 (gross profit) ÷ $1,314.00 (labor sales) = 0.69 (69% gross profit percentage)
- Subtract the gross profit percentage from 100 to obtain the cost-of-sales percentage (COS %).
100% – 69% (gross profit percentage) = 31% (COS %)
In this example, the plan attains an acceptable gross profit percentage when properly tested and therefore qualifies for implementation.
Note: The average domestic vehicle trainee turns 30.0 hours under this program. The average import vehicle trainee turns 36.0 hours under this program.
Step 7 – Implement the Bookkeeping Procedures
As with any change that deals with payroll issues, effective communication with the dealership’s business manager and/or payroll administrator is absolutely essential. The following accounting techniques have proven to be acceptable in most situations. Every business office’s procedures vary, but these tasks should be accommodated by the procedure that is employed.
- Cost each repair order at the trainee’s stated hourly rate.
- The service manager must provide the accounting office with a summary of the total flat rate hours produced by each trainee for each pay period. From this summary, accounting will determine the wages paid to the trainee other than cost-of-sales included in Item 1. above that must be accounted as “training expense.”
- Create an accounts payable account for each trainee to accrue the bonus amounts generated by each trainee. Bonuses are calculated by subtracting a trainee’s individual weekly production objective as calculated in Step 3 from their actual flat rate hours produced and multiplying the remainder (if greater than zero) by the trainee’s bonus accrual rate as determined in Step 5. The Trainee Technician Bonus Accrual Summary worksheet presented in Annex B can be used for this purpose.
On a monthly (or pay period) basis, expense the bonus accruals to the service department’s training expense account and increase the appropriate trainer’s accounts payable account by the same amount,
i.e., (+ Training Expense/- Accounts Payable).
- When the bonus accrual is distributed by the payroll department to the training technicians involved, the accounts payable account is reduced by the amount paid. Pay on the individual payroll as a bonus. The payroll journal will record the bonus that was distributed from the appropriate accounts payable account,
i.e., (+ Accounts Payable/- Payroll cash in the bank).
- In the event the bonus accrual is forfeited as described in Section II. above, the entire accrual amount should be applied to reduce the accounts over a period of months or allowed to be cleared during the annual audit by reclassification by your auditors,
i.e., (+ Accounts Payable/- Training Expense).
Outstanding results have been obtained in dealership after dealership that have used the Trainee Pay Plan. Commissioned technicians do not see the trainee’s production hurting their earning potential as much as with other plans. Senior technicians show a greater interest in helping trainees because it does not take much time away from their own production. Trainees are used less as “go-fers” and learn more in a shorter period of time.
The pay plan benefits the training technicians in a matter that is financially sound for the department. Management finds it much easier to develop and maintain a plan for a trainee’s development. Trainees normally avoid being assigned to “dead-end” jobs that break their spirit early in their careers, and their wages are easily adjusted to the pace of their development.
Like anything worthwhile, the plan takes a considerable amount of work to properly implement. But done properly, it will pay big dividends to the department and the dealership.